<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the period ended June 28, 1997, or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from __________
to __________
Commission File No. 0-12719
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GIGA-TRONICS INCORPORATED
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(Exact name of Registrant as specified in its charter)
California 94-2656341
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4650 Norris Canyon Road, San Ramon, CA 94583
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (510) 328-4650
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Common stock outstanding as of June 28, 1997: 3,799,446
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PAGE 2
GIGA-TRONICS INCORPORATED
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
<S> <C> <C>
ITEM 1 Consolidated Financial Statements:
Consolidated Balance Sheets as of June 28, 1997
(unaudited) and March 29, 1997 (unaudited)..................... 3
Consolidated Statements of Operations, three months
ended June 28, 1997 and June 29, 1996 (unaudited).............. 4
Consolidated Statements of Cash Flows, three months
ended June 28, 1997 and June 29, 1996 (unaudited).............. 5
Notes to Unaudited Consolidated Financial Statements........... 6
ITEM 2 Management's Discussion and Analysis of
Operations and Financial Condition............................. 8
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1
TO 5 Not Applicable
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Net Earnings and
Common Share Equivalents....................... 11
(27) Financial Data Schedule......................... 12
(b) Reports on Form 8-K
Not Applicable
SIGNATURES...................................................................... 10
</TABLE>
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GIGA-TRONICS INCORPORATED PAGE 3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
------
June 28, 1997 March 29, 1997
------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,213 $ 6,796
Investments 6,977 7,010
Trade accounts receivable, net 3,965 3,794
Inventories, net 6,932 6,461
Prepaid expenses 417 422
Deferred income taxes 1,737 1,729
-------- --------
Total current assets 27,241 26,212
Property and Equipment:
Machinery and equipment 7,977 7,756
Office furniture and fixtures 673 672
Land 279 279
Building and leasehold improvements 744 744
-------- --------
Gross cost property and equipment 9,673 9,451
Less accumulated depreciation and amortization (6,929) (6,701)
-------- --------
Net property and equipment 2,744 2,750
Patents and licenses 903 1,030
Other assets 76 107
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Total assets $ 30,964 $ 30,099
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 2,511 $ 2,325
Accrued commissions 411 305
Other current liabilities 790 813
Accrued payroll and benefits 972 791
Accrued warranty 683 670
Customer advances 391 540
Income taxes payable 105 0
Notes payable 75 76
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Total current liabilities 5,938 5,520
Long term debt 890 909
Obligation under capital lease 48 57
Deferred income taxes 121 121
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Total liabilities 6,997 6,607
Shareholders' Equity:
Preferred stock of no par value;
Authorized 1,000,000 shares; no shares outstanding
at June 28, 1997 and March 29, 1997 -- --
Common stock of no par value;
Authorized 40,000,000 shares; 3,799,446 shares at
June 28, 1997 and 3,799,196 shares at March 29, 1997
issued and outstanding 11,064 11,064
Unrealized gain (loss) on investments (3) 11
Retained earnings 12,906 12,417
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Total shareholders' equity 23,967 23,492
-------- --------
Total liabilities and shareholders' equity $ 30,964 $ 30,099
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</TABLE>
See accompanying notes to unaudited consolidated financial statements
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PAGE 4
GIGA-TRONICS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
June 28, June 29,
1997 1996
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<S> <C> <C>
Net Sales $ 7,910 $ 8,580
Cost of sales 4,264 5,366
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Gross profit 3,646 3,214
Product development 946 968
Selling, general and administrative 2,010 1,818
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Operating expenses 2,956 2,786
Net operating income 690 428
Other income (expense) 13 21
Amortization of intangibles (127) (140)
Interest income, net 122 105
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Earnings before income taxes 698 414
Provision for income taxes 209 102
------- -------
Net earnings $ 489 $ 312
======= =======
Earnings per share of common stock $ 0.13 $ 0.08
======= =======
Weighted average common and common
equivalent shares outstanding 3,807 3,828
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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PAGE 5
GIGA-TRONICS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
June 28, June 29,
1997 1996
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<S> <C> <C>
Cash flows provided from operations:
Net earnings as reported $ 489 $ 312
Adjustments to reconcile net earnings to
net cash provided from operations:
Depreciation and amortization 360 418
Gain on sale of fixed assets (3) (14)
Deferred income taxes, net (8) 29
Changes in operating assets and liabilities (228) 806
------- -------
Net cash provided by operations 610 1,551
Cash flows provided by investing activities:
Investment maturities (purchases), net 19 (28)
Additions to property and equipment, net (224) (61)
Other assets 31 2
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Net cash used in investing activities (174) (87)
Cash flows from financing activities:
Issuance of common stock -- 206
Payments on notes payable (20) (18)
Issuance of other obligations 1 64
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Net cash provided by financing activities (19) 252
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Increase in cash and cash equivalents 417 1,716
Beginning cash and cash equivalents 6,796 5,923
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Ending cash and cash equivalents $ 7,213 $ 7,639
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</TABLE>
Supplementary disclosure of cash flow information:
(1) Cash paid for interest in the three month period ending June 28, 1997
was $33,000.
(2) Cash paid for income taxes in the three month period ending June 28,
1997, was $122,000.
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 6
PAGE 6
GIGA-TRONICS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by the
Company, pursuant to the rules and regulations of the Securities and
Exchange Commission. The results of operations for the interim periods
shown in this report are not necessarily indicative of results to be
expected for the fiscal year. In the opinion of management, the
information contained herein reflects all adjustments necessary to make
the results of operations for the interim periods a fair statement of
such operations. For further information, refer to the financial
statements and footnotes thereto, included in the Annual Report on Form
10-K, filed with the Securities and Exchange Commission for the year
ended March 29, 1997.
(2) Business Combination
Effective June 27, 1997 Giga-tronics completed a merger with Viking
Semiconductor Equipment, Inc. (Viking), hereafter collectively referred
to as the Company, by issuing approximately 420,000 shares of the
Company's common stock in exchange for all of the common stock of
Viking. The merger has been accounted for using the pooling-of-interest
method of accounting and accordingly, the consolidated financial
statements for periods prior to the combination have been restated to
include the accounts and results of operations of Viking. The results of
operations previously reported by the separate enterprises and the
combined amounts presented in the accompanying consolidated financial
statements are summarized below:
<TABLE>
<CAPTION>
(In thousands) Three months ended Three months ended
June 28, 1997 June 29, 1996
------------------ ------------------
<S> <C> <C>
Net Sales
Viking $ 1,313 $ 787
Giga-tronics 6,597 7,793
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Combined $ 7,910 $ 8,580
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Net Income
Viking $ 141 $ (193)
Giga-tronics 348 505
------- -------
Combined $ 489 $ 312
======= =======
</TABLE>
Prior to the combination, Viking's fiscal year ended May 31. In
recording the pooling-of-interest combination, Viking's financial
statements for the twelve months ended March 31, 1997 were combined with
Giga-tronic's financial statements for the same period and Viking's
financial statements for the year ended May 31, 1996 were combined with
Giga-tronic's financial statements for the year ended March 30, 1996. An
adjustment has been made to shareholders' equity for fiscal 1997 to
eliminate the effect of including Viking's results of operations for the
two month period ended May 31, 1996, in both the years ended March 31,
1997 and 1996.
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PAGE 7
GIGA-TRONICS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Viking manufactures and markets a line of optical inspection equipment
used to manufacture and test semiconductor devices. Products include die
attachments, automatic die sorters, tape and reel equipment, and wafer
inspection equipment.
(3) Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
share" (SFAS No. 128). SFAS No. 128 establishes a different method of
computing net income per share than is currently required under the
provisions of Accounting Principles Board Opinion No. 15. Under SFAS No.
128, the Company will be required to present both basic net income per
share and diluted net income per share. Basic net income per share is
expected to be higher than the currently presented income per share as
the effect of dilutive stock options will not be considered in computing
basic net income per share. Diluted net income per share is expected to
be comparable to earnings per share as presented in the accompanying
consolidated financial statements. The Company plans to adopt SFAS No.
128 in its fiscal quarter ending December 27, 1997 and at that time all
historical net income per share data presented will be restated to
conform to the provisions of SFAS No. 128.
(4) Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 28, 1997 March 29, 1997
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<S> <C> <C>
Raw materials $2,550 $2,531
Work-in-process 2,936 2,522
Finished goods 1,446 1,408
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$6,932 $6,461
====== ======
</TABLE>
<PAGE> 8
PAGE 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks and uncertainties.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including but not
limited to those discussed below. Forward-looking information provided by
Giga-tronics pursuant to the safe harbor established by recent securities
legislation should be evaluated in the context of these factors.
Net sales for the three month period ended June 28, 1997 decreased 7.8%
($670,000) compared to the same period last year principally due to declining
signal generator (SG) sales volume. The change resulted from a decrease of
approximate $2.0 million in the SG product line and $.5 million in the switching
modules product line, which were partially offset by an increase of
approximately $1.3 million in power measurement products (PM) and $.5 million in
the semiconductor equipment related products. The decline in SG sales is
attributable to maturing of the product line, delays in new product releases and
continued constraints on military budgets. The change in switching modules
reflects normal fluctuations between periods due to timing of large orders. The
increase in the PM products is due to new product releases and growth in the
commercial wireless telecommunications market. The growth in semiconductor
products reflects increased manufacturing throughput.
Gross profit for the three month period increased by 13.4% ($432,000) despite
the lower sales volume due principally to lower manufacturing labor costs. The
total numbers of employees declined 10% over the prior year to 203 people. Gross
margin as a percent of sales increased to 46.1% for the first quarter of fiscal
1998 compared to 37.5% for the first quarter of fiscal 1997.
Operating expenses increased to 37.4% of sales in the first quarter of fiscal
year 1998 compared to 32.5% in the first quarter of fiscal 1997. Actual spending
increased 6.1% ($170,000) principally due to higher advertising expenses and
sales and administrative salaries related to the semiconductor product line.
Interest income increased $17,000 over the prior year due to higher cash
available for investment as a result of positive earnings.
Earnings before income taxes for the three month period increased 68.6%
($284,000) compared to the same period last year. The change was primarily due
to improved gross margins partially offset by higher operating expenses.
Orders for the three month period were 7.4% lower ($597,000) than the same
period last year. Orders were lower for switching modules and semiconductor
products caused by normal fluctuations between periods for large orders. Backlog
at June 1997 was $7,162,000 compared to $7,593,000 at the March year end.
<PAGE> 9
PAGE 9
FINANCIAL CONDITION
The Company maintains a strong financial position, with working capital of
$21,303,000 and a ratio of current assets to current liabilities of 4.6 at June
28, 1997. The Company continues to fund all of its working capital needs from
cash provided by operations. Cash provided from operations for the three month
period ended June 28, 1997 was $610,000.
During the three month period, the Company spent $224,000 on new manufacturing
and test equipment and other capital items. The Company will continue to invest
in capital items that support growth and new product development, raise
productivity and improve quality. Historically the Company has satisfied its
cash needs internally for both operating and capital expenses, and management
expects to continue to do so.
Management believes that cash reserves and investments remain adequate to meet
anticipated operating needs. In the near term, cash will be used to liquidate
the debt of the acquired Viking Semiconductor Equipment subsidiary. It is also
the Company's intention to increase research and development expenditures for
the purpose of broadening its product base. From time to time, the Company
considers a variety of acquisition opportunities to also broaden its product
lines and expand its market. Such acquisition activity could also increase the
Company's operating expenses and require the additional use of capital
resources.
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PAGE 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GIGA-TRONICS INCORPORATED
(Registrant)
Date: 8/1/97 /s/ George H. Bruns, Jr.
------------------------------------
George H. Bruns, Jr.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: 8/1/97 /s/ Nyla R. Kientzler
------------------------------------
Nyla R. Kientzler
Controller
(Principal Accounting Officer)
Date: 8/1/97 /s/ George H. Bruns, Jr.
------------------------------------
George H. Bruns, Jr.
Acting Vice President, Finance and
Chief Financial Officer
<PAGE> 1
PAGE 11
EXHIBIT 11
PART II, Item 6
COMPUTATION OF NET EARNINGS PER SHARE AND
COMMON SHARE EQUIVALENTS
(Unaudited)
(In thousands, except per share data)
Earnings per share were computed using the weighted average number of shares
outstanding plus, when dilutive, incremental shares issuable upon exercise of
outstanding options under the treasury stock method.
<TABLE>
<CAPTION>
Three Months Ended
------------------------
June 28, June 29,
1997 1996
-------- --------
<S> <C> <C>
Weighted average:
Common shares outstanding 3,799 3,758
Common share equivalents 8 70
------ ------
3,807 3,828
====== ======
Net earnings $ 489 $ 312
====== ======
Net earnings per share of common stock $ 0.13 $ 0.08
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000719274
<NAME> GIGA-TRONICS
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1997
<PERIOD-START> MAR-30-1997
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 7,213
<SECURITIES> 6,977
<RECEIVABLES> 4,239
<ALLOWANCES> 274
<INVENTORY> 6,932
<CURRENT-ASSETS> 27,241
<PP&E> 9,673
<DEPRECIATION> 6,929
<TOTAL-ASSETS> 30,964
<CURRENT-LIABILITIES> 5,938
<BONDS> 890
0
0
<COMMON> 11,064
<OTHER-SE> 12,903
<TOTAL-LIABILITY-AND-EQUITY> 23,967
<SALES> 7,910
<TOTAL-REVENUES> 7,910
<CGS> 4,264
<TOTAL-COSTS> 7,220
<OTHER-EXPENSES> 114
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (122)
<INCOME-PRETAX> 698
<INCOME-TAX> 209
<INCOME-CONTINUING> 489
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 489
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
